One way that you are able to meet your financial needs or to consolidate high interest debt is to get a personal loan. This is because a personal loan will usually have a lower interest rate compared to credit cards and offer structured repayments.
However, if you want to qualify for a personal loan then you will need to have the acceptable minimum credit. The better your credit score is then the more advantageous the terms of your personal loan will be.
If you need to improve your credit before you can qualify for a personal loan then here are some ways you can do this.
Know Your Credit Score First
The first thing that you need to know before you start improving your credit is to know how your credit score is calculated. Your credit score is a 3 digit number that ranges and as a general rule the higher your credit score the better it is. Anything below 600 or so can be considered a risk.
The score that you have is based on your payment history, how old your accounts are, your credit usage, the types of credit you have and how many new accounts you apply for. These all carry a percentage and contribute a certain amount to your score.
Once, you know how your credit score is calculated, you are able to take steps to make sure that you don’t hurt your credit score.
If you wish to improve your credit then you will need to know where the problem is by getting your credit report.
You might be wondering how you can get your credit score higher…
Time to Improve Your Credit Score
Once you have a copy of your credit report, you should first check it for any inaccuracies. Go through your report and see if there are any mistakes, like someone else’s credit under your name. You should get these mistakes fixed as soon as possible by reporting them to the credit bureaus.
Other inaccuracies may include untrue information like a debt is reported as default when it is actually now brought as current and paid. You should contact the creditor directly and ask them to fix the issue. You should also notify the credit bureau of this mistake.
A good percentage of your score is based on the amount of available credit you use. Lenders do not want to see that you have maxed out credit cards or high credit usage as this shows that you are actually living beyond your means and that you might find it difficult to keep up with payments in the future. Your credit usage should be around 30% of the credit that is available to you and if it is more, you should focus on paying these debts.
You should contact your creditors and ask them to remove black marks. If you have a good relationship with your creditor that is reporting a late payment, you can call them and ask them if they will be willing to remove the record of the late payment. There are some creditors that will do this, especially if this is your first late payment.
If you are trying to improve your credit then you should refrain from opening new cards. If you open too many cards then you will have too many inquiries on your credit report. Lenders may see this as you are about to go on a spending spree. You should not take any new loans or open new cards if you plan on applying for a new loan in the close future.
Lenders like to see that you have different types of credit as it can show that you have been responsible for paying various types of loans off like a credit card, mortgage debts and car loans.
If you have a friend or a family member that has good credit then you should see if they are willing to list you as an authorized signer on one of their cards. This will mean that you do not have to apply and they don’t even have to give you the card. Once you are an authorized signer, the credit history of that account will be reflected on your report and this could raise your credit score.
If you are applying for a personal loan with your bank then they might be willing to use traditional underwriting standards. This means that your entire application is looked at and not just your credit score when they decide whether or not to give you a loan. If they are willing to do this, then they may also take into account evidence of why you have bad credit like if you lost your job, for instance, and give you a loan anyway even if your credit is not the best. This is also based on that your past mistakes are unlikely to repeat on the new loan.
Once you have improved your credit, you will find it easier to qualify for a personal loan that you may need. Focus your efforts on improving your credit. You are able to get a loan with bad credit, but you will often face very high interest rates and the only way to avoid this is by creating a better credit score.